default judgment

In Maryland, the Court of Appeals just approved rules that will prevent debt buyers from getting a default judgment with nothing more than a name and a dollar amount. From now on, ” target=”_blank”>debt buyers will actually have to provide proof of ownership and indebtedness.

This may sound like common sense, but Maryland is—unfortunately—being a bit revolutionary, here. In most states, a debt buyer does the equivalent of writing a number and a name on a napkin, and walks away with the right to garnish wages and bank accounts.

Regardless how a case reaches the garnishment stage, having your bank account frozen is a very unsettling feeling. Learning about how garnishment works, and how cases reach the garnishment stage, can help you understand what is going on.

If the default numbers for Minnesota are any indication, debt collectors are falling all over themselves, suing everyone in sight. In 2007, a “mere” 36,000 defaults were filed. In 2008, that number jumped to just over 51,000.

Some were responsible for more of those lawsuits than others. Minnesota debt collection law firm Messerli & Kramer, for example, filed nearly 35% of the default judgments in Hennepin County for Dakota Bluff Financial, LLC; Livingston Financial, LLC; Midland Funding, LLC; Pipestone Financial, LLC; Red Rock Lake Financial, LLC; and Capital One

The worst part is that many of these cases are brought by debt buyers who cannot prove their case. But the odds are on their side. As far as I can tell, very few consumers ever answer the complaint or defense themselves.

If you get sued over a debt, contact a consumer rights lawyer as soon as possible to find out whether you can win your case.

Due to a change in Minnesota’s garnishment statute, the following no longer applies. Now, the burden is on the debt collector to request a hearing if it objects to the debtor’s exemption claim.

Today I discovered yet another way debt collectors use the court system to their advantage. Even though some funds—like child support payments—are exempt from garnishment, a debt collector can make it difficult for the debtor-defendant to get an exemption. In a matter I saw today, Messerli & Kramer served a complaint on the debtor, who failed to answer because she did not realize that she (effectively) had no rights unless she showed up in court to assert them. She also didn’t talk to an attorney at the outset like she should have.

So the debt collector got a default judgment and started with garnishment. But because the funds in the debtor’s account were child support payments, and therefore exempt, she filled out the exemption form and sent it back. Seeing the writing on the wall, the debt collector objected to the garnishment, assuming (probably correctly) that the debtor would not bring the necessary motion in district court. Minnesota law favors creditors and debt collectors so much that all a debt collector needs to do is object. The debtor must then file a motion in district court to grant the exemption, placing the burden on the debtor, not on the debt collector.

The debt collector in this case would surely argue that it was only asserting its right to be sure the claimed exemption was legitimate. And that is certainly the reason the law gives the debt collector a right to object to exemption claims. However, by placing the burden on the debtor to bring a motion to determine the exemption, while all the debt collector has to do is object, and get paid, the law basically rubber stamps debt collectors’ objections to exemption claims.

Instead, the burden should be on the debt collector, given the realities of debt collection. But debtors obviously don’t have the lobby that the debt collectors do, so the law favors the debt collectors.